1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 25TH DAY OF AUGUST 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.89 OF 2013 BETWEEN: M/S. MINDTREE LTD., (FORMERLY MINDTREE CONSULTING PVT. LTD.,) GLOBAL VILLAGE, RVCE POST MYLASANDRA, MYSORE ROAD BENGALURU-560059. ... APPELLANT (BY SRI. CHYTHANYA K.K., ADV.,) AND: ASST. COMMISSIONER OF INCOME TAX CIRCLE-12(1), LTU BENGALURU-560085. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.,) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 11.01.2013 PASSED IN ITA NO.428/BANG/2012 FOR ASSESSMENT YEAR 2008-09, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTION OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDER BY ITAT, BANGALORE B BENCH BEARING ITA NO.428/BANG/2012 DATED 11-01-2013, IN INTEREST OF JUSTICE AND EQUITY. 2 THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 2008-09. appeal was admitted by bench of this Court vide order dated 09.04.2013 on following substantial questions of law: (i) Whether on facts and in circumstances of case, Honourable ITAT was right in upholding action of Learned Respondent in excluding expenditure of Rs.198,17,58,814/- incurred in foreign currency from export turnover under Section 10B and Section 10AA of IT Act when Appellant is engaged in software development? (ii) Whether on facts and in circumstances of case, Honourable ITAT was right in upholding action of Learned Respondent in excluding 3 telecommunication charges of Rs.3,70,62,460/- from export turnover under Section 10B and Section 10AA of IT Act when same represented payment made for standard facility? (iii) Whether on facts and in circumstances of case, Honourable ITAT was right in upholding action of learned respondent in excluding expenditure of Rs.198,17,58,814/- incurred in foreign currency from export turnover under Section 10B and Section 10AA of IT Act when appellant is engaged in software development? (iv) Whether on facts and in circumstances of case, Honourable ITAT was right in upholding orders of lower authorities in excluding telecommunication charges of Rs.83,19,013/- from export turnover under Section 10B and Section 10AA of IT Act when same was not incurred in foreign currency? 4 (v) Whether on facts and in circumstances of case, Honourable ITAT was right in upholding action of learned respondent in excluding telecommunication charges of Rs.3,70,62,460/- from export turnover under Section 10B and Section 10AA of IT Act when same represented payment made for standard facility? 2. factual backdrop in which aforesaid questions arise for consideration in this appeal needs mention. assessee is company engaged in software development and filed its return of income for Assessment year 2008-09 by declaring total income of Rs.17,71,91,200/-. return was processed under Section 143(1) of Act and was selected for scrutiny assessment under Section 143(3) of Act. Thereupon, notice under Section 143(2) of Act was issued. Assessing Officer by order 31.12.2010 inter alia held that deductions as claimed by assessee under Section 10B and Section 10AA are required to be 5 recomputed and return of income after re- computation of deduction was assessed along with interest and penalty. Being aggrieved, assessee filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 03.02.2012 partly allowed appeal. Being aggrieved, assessee as well as revenue filed appeals before Income Tax Appellate Tribunal (hereinafter referred to as Tribunal , for short). Tribunal vide order dated 11.01.2013 dismissed appeal preferred by assessee. In aforesaid factual background, assessee has filed this appeal. 3. Learned counsel for parties at outset submitted that substantial question of law Nos. III and V in substance arise for consideration in this appeal. 4. It is submitted by learned counsel for assessee that assessee had incurred expenditure of Rs.198,17,58,814/- in foreign currency from export turnover when assessee was engaged in software 6 development and therefore, in view of Explanation 2(iii) to Section 10B of Act, term export turnover does not include any expenses incurred in foreign exchange in providing technical services outside India. However, notwithstanding fact that having found that assessee is engaged in development of computer software, which would qualify for deduction under Section 10B of Act, Commissioner of Income Tax (Appeals) and Tribunal have failed to appreciate aforesaid aspect of matter. It is further submitted that expression export turnover used in Explanation 2(iii) to Section 10B of Act does not include trade, telecommunication charges or insurance attributable to delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services. It is therefore, submitted that aforesaid expenses could not have been excluded from export turnover. In support of aforesaid submissions, reference has been made to order dated 26.12.2011 passed by 7 Assessing Officer in case of assessee itself for Assessment year 2009-10, and expenditure incurred by assessee towards telecommunication expenses, foreign currency expenses was excluded from export turnover. aforesaid order was upheld by Income Tax Appellate Tribunal vide order dated 11.05.2016 passed in I.T.A.Nos.1328, 1347/bang/2011 and 1391/bang/2013. Thereafter, order was passed on 31.01.2017 by which order of Tribunal was given effect to. It is further submitted that substantial questions of law involved in this appeal are no longer res integra and have been answered by division bench of this court in I.T.A.No.42/2008 vide judgment dated 20.10.2014. aforesaid order was upheld by Supreme Court vide order dated 22.02.2019. Reliance has been placed on decisions of this court in COMMISSIONER OF INCOME-TAX, BANGALORE VS. MPHASIS LTD. , (2016) 74 TAXMANN.COM 274 (KARNATAKA) which has been upheld by Supreme Court vide order dated 13.11.2019 passed in 8 SLP(C)No.766/2015. Reference has also been made to decisions of this court in COMMISSIONER OF INCOME TAX AND ANR. VS. M/S TATA ELXSI LTD AND ANR. , I.T.A.NO.386, 387 & 388/2015 DECIDED ON 15.02.2016 and COMMISSIONER OF INCOME-TAX, BANGALORE VS. RELQ SOFTWARE (P) LTD. , (2015) 53 TAXMANN.COM 78 (KARNATAKA). 5. On other hand, learned counsel for revenue submitted that finding with regard to nature of contracts entered into by assessee has not been returned either by Commissioner of Income Tax (Appeals) or by Income Tax Appellate Tribunal and therefore, matter deserves to be remitted for adjudication of aforesaid factual aspect to Commissioner of Income Tax (Appeals). It is also urged that aforesaid questions of fact cannot be adjudicated by this court in this appeal and decisions relied upon by learned counsel for revenue are distinguishable as in aforesaid cases, findings 9 were recorded with reference to facts of case. 6. We have considered submissions made by learned counsel on both sides and have perused record. Before proceeding further, it is apposite to take note of relevant provisions of Section 10B and Section 10AA of Act. Explanation 2(iii) to Section 10B export turnover means consideration in respect of export by undertaking of articles or things or computer software received in, or brought into India by assessee in convertible foreign exchange in accordance with Section 10B(3), but does not include:- (a) Freight, telecommunication charges or insurance attributable to delivery of articles or things or computer software outside India. or (b) Expenses, if any, incurred in foreign exchange in providing technical services 10 outside India. 7. From perusal of aforesaid provision, it is evident that expression export turnover does not include any expenses incurred in foreign exchange in providing technical services outside India. Explanation 1(i) to Section 10AA and Explanation 2 to Section 10AA read as under: export turnover means consideration in respect of export by undertaking, being Unit of articles or things or services received in, or brought into, India by assessee but does not include a. Freight, telecommunication charges or insurance attributable to delivery of articles or things outside India. or expenses, if any, incurred in foreign exchange in rendering of services (including computer software) outside India Explanation 2 For removal of 11 doubts, it is hereby declared that profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be profits and gains derived from export of computer software outside India. 8. In light of aforementioned statutory provisions, facts of case in hand may be examined. It is pertinent to note that Commissioner of Income Tax (Appeals) in paragraph 5.2 of order has taken note of agreements entered into by assessee and has reproduced relevant extracts of agreement in tabular form. Thereafter, in paragraph 5.4, Commissioner of Income Tax (Appeals) has held as follows: In instant case, it is true that appellant is engaged in development of computer software, which is then exported outside India. 9. Thus, Commissioner of Income Tax 12 (Appeals) has recorded categorical finding that assessee is engaged in development of computer software, which is exported outside India. aforesaid finding has not been set aside by Tribunal. Therefore, in view of Explanation 2(iii) to Section 10B of Act, expression export turnover does not include any expenses incurred in foreign exchange in providing technical services outside India. assessee has incurred expenditure of Rs.198,17,58,814/- in foreign currency from export turnover for software development. Similarly, telecommunication charges attributable to delivery of computer software outside India could not have been excluded from export turnover in view of Explanation 1(i) to Section 10AA of Act. It is also noteworthy that Explanation 2 to Section 10AA provides that profits and gains derived from; on site development of computer software (including services for development of software) outside India shall be deemed to be profits and gains derived from export of computer software outside India. 13 10. It is pertinent to mention here that in case of assessee itself, for Assessment year 2009-10, expenditure incurred in foreign currency was not reduced from export turnover and total turnover, which is evident from order dated 31.01.2017 passed by Assistant Commissioner of Income Tax. bench of this court in Tata Elxsi Limited supra has also taken view that technical services rendered by assessee s engineers in connection with export of computer software, cannot be excluded in computing export turnover as it forms part of export turnover. aforesaid order was upheld by Supreme Court vide order dated 22.02.2019 passed in SLP (C) No.19150/2015. division bench of this court in Mphasis Ltd., supra has held that foreign currency expenditure incurred for providing software development services outside India cannot be excluded from export turnover for purpose of computing deduction under Section 10B of Act and aforesaid decision has been upheld by Supreme Court vide 14 order dated 13.11.2019 passed in SLP (C) No.766/2015. In view of preceding analysis, substantial questions of law No.3 and 5 are answered in favour of assessee and against revenue. In result, impugned order dated 11.01.2013 to extent it is prejudicial to assessee is hereby quashed. In result, appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss Mindtree Ltd. (Formerly Mindtree Consulting Pvt. Ltd.) v. Asst. Commissioner of Income-tax Circle-12(1), LTU, Bengaluru